Nobel Science
From: Stephen Cullenberg (stephen.cullenberg@UCR.EDU)
Date: Mon Oct 11 2004 - 13:20:57 EDT
"From the perspective of growth theory, the Great
Depression
is a great decline in steady-state market hours. I think
this great decline was the unintended consequence of labor
market institutions and industrial policies designed to improve
the performance of the economy. Exactly what
changes in market institutions and industrial policies gave
rise to the large decline in normal market hours is not
clear. But, then, neither is it clear why market hours are so
low in France and Spain today.
"The Marxian view is that capitalistic economies are
inherently unstable and that excessive accumulation of
capital will lead to increasingly severe economic crises.
Growth theory, which has proved to be empirically successful,
says this is not true. The capitalistic economy is
stable, and absent some change in technology or the rules
of the economic game, the economy converges to a constant
growth path with the standard of living doubling
every 40 years. In the 1930s, there was an important
change in the rules of the economic game. This change
lowered the steady-state market hours. The Keynesians had
it all wrong. In the Great Depression, employment was not
low because investment was low. Employment and investment
were low because labor market institutions and
industrial policies changed in a way that lowered normal
employment."
Some Observations on the Great Depression
Federal Reserve Bank of Minneapolis Quarterly Review
Winter 1999, vol. 23, no. 1, pp. 25-31
Edward C. Prescott
Adviser
Research Department
Federal Reserve Bank of Minneapolis
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